James River Ins. Co. v. Rich Bon Corp.

• Decision Date: 23 May 2022
• Docket Number: 20-11617
• Citation: 34 F.4th 1054
• Parties: JAMES RIVER INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant, v. RICH BON CORP., a Florida corporation d.b.a. The Mint Lounge, Marquell Shellman, an individual, Daina Hilbert, as Personal Representative of the Estate of David Hilbert, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

34 F.4th 1054

JAMES RIVER INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant,

v.RICH BON CORP., a Florida corporation d.b.a. The Mint Lounge, Marquell Shellman, an individual, Daina Hilbert, as Personal Representative of the Estate of David Hilbert, Defendants-Appellees.

No. 20-11617

United States Court of Appeals, Eleventh Circuit.

Filed: May 23, 2022

Eric A. Hiller, Junaid Savani, Kennedys Law, LLP, Miami, FL, for Plaintiff-Appellant.

Meredith Chaiken, Whitelock & Associates, PA, Fort Lauderdale, FL, Tracy White, Law Office of Tracy White, Jupiter, FL, Thomas U. Graner, Graner Platzek & Allison, PA, Boca Raton, FL, for Defendant-Appellee Rich Bon Corp.

Anthony Murphy, Jermaine Thompson, Law Office of Jermaine O'Neill Thompson, PA, Oakland Park, FL, for Defendant-Appellee Daina Hilbert.

Before Branch, Grant, and Brasher, Circuit Judges.

Grant, Circuit Judge:

Ordinarily, federal courts have no margin for error on questions of our jurisdiction. But Declaratory Judgment Act cases are different, because that statute vests courts with discretion to say whether declaratory relief is appropriate in the underlying conflict. Here that meant deciding whether the federal suit would interfere with a pending state action.

The district court chose to dismiss the federal case, concluding that it overlapped significantly with the one in state court. But in the process the court overstepped the bounds of its discretion because it fully assessed only one of the claims for declaratory relief, rather than both of them. We therefore vacate and remand.

I.

Late one Miami summer night at the Mint Lounge, an argument between acquaintances escalated into a shootout. A guest at the nightclub, Marquell Shellman, was shot. So was club employee David Hilbert, who tragically died from his injuries.

The nightclub was insured by James River Insurance Company under a general liability policy, which covered "bodily injury and property damage liability." The policy contained several restrictions on that coverage. To start, it excluded both worker's compensation liability and employee-injury liability. The policy also imposed limits on coverage for bodily injuries "arising out of, resulting from, or in connection with" assault or battery. The limit per occurrence was $25,000, and the aggregate assault-and-battery limit was $50,000.

A few months after the shooting Shellman sued the nightclub in Florida state court, alleging that it was negligent for failing to provide adequate security; a lawsuit from Hilbert's estate was expected too. So to determine the full extent of its liability under the policy, James River filed a federal declaratory judgment action against Mint, Shellman, and Hilbert's estate.

The insurer raised two claims in its complaint. First, it contended that because the nightclub shooting was an assault and battery, the policy limited recovery for any and all injuries to $50,000. Second, it argued that the worker's compensation and employee-injury exclusions barred Hilbert from recovery because he was an employee of the nightclub. The district court stayed the case pending resolution of Shellman's state court suit. Soon after, James River settled the state suit on the nightclub's behalf for $50,000 minus claim expenses and costs—the total amount available under the assault and battery cap.

Ten months later, Hilbert's estate sued the nightclub in Florida state court. One wrinkle for the estate was that the Florida worker's compensation statute generally prohibits employees from bringing tort claims against their employers. See Fla. Stat. § 440.11(1). To get around that problem, the estate argued that the nightclub's actions triggered a statutory exception for intentional torts. It alleged that the nightclub had engaged in conduct that it "knew"—based on similar incidents in the past—"was virtually certain to result in injury or death to the employee." See id. § 440.11(1)(b).

Both the estate's tort action and James River's federal declaratory judgment action thus required a decision on whether the Florida worker's compensation statute applied to Hilbert. The tort suit, however, did not raise any questions about the insurance policy or its assault and battery limit. In fact, Florida law barred adding James River to that suit. See id. § 627.4136.

While its state court suit proceeded, Hilbert's estate moved the federal district court to lift its stay of the declaratory action so that it could dismiss the case altogether. The court lifted the stay, but did not immediately dismiss the case. Meanwhile, James River amended its federal complaint to ask the court to declare not only that the $50,000 assault and battery limit applied, but also that the Shellman settlement had exhausted that coverage. In response, the estate again asked the court to exercise its discretion and dismiss the case in deference to the concurrent state court suit.

The district court considered whether to exercise jurisdiction in two steps. It first asked whether the two suits were parallel enough to compare at all, concluding they were for two reasons: the claims in both cases involved Florida's worker's compensation law, and the defendants in the federal suit were also parties in the state action. It then moved on to consider whether the federalism and comity concerns generated by the declaratory action outweighed the efficiency gains of resolving the claims in federal court, applying the guideposts this Court provided in Ameritas Variable Life Ins. Co. v. Roach , 411 F.3d 1328 (11th Cir. 2005). Relying primarily on the conflict between one of the federal claims and the state case, the district court dismissed the case. James River appeals.

II.

When a district court dismisses a declaratory judgment action, we review for abuse of discretion. Ameritas , 411 F.3d at 1330. A district court abuses its discretion (1) when it fails to consider a relevant and significant factor; (2) when it gives significant weight to an improper factor; or (3) when it "commits a clear error of judgment" in weighing the proper factors. Id. (quotation omitted). A district court also abuses its discretion when it applies "the wrong legal standard." Id.

III.

A.

When district courts decide whether to proceed with declaratory judgment actions that raise issues also disputed in state court proceedings, they are called to balance conflicting interests—to foster efficient dispute resolution while still preserving the States’ interests in resolving issues of state law in their own courts. Discerning "the propriety of declaratory relief" requires "a circumspect sense" of the whole affair. Wilton v. Seven Falls Co. , 515 U.S. 277, 287, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (quotation omitted).

On one hand, a declaratory judgment action is often quite efficient, eliminating delays and uncertainty. It may enable, for example, a prospective defendant to ask the court to declare its "rights and other legal relations," including whether it is liable to a prospective plaintiff for prior or planned future acts. 28 U.S.C. § 2201(a). Without the chance to seek a declaratory judgment, a prospective defendant would often be stuck, waiting out statutes of limitations while watching for lawsuits. See 10B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 2751 (4th ed. 2021). That waiting game can impose serious costs, whether financial or personal.

Declaratory actions are especially helpful for third parties—insurance companies in particular. See, e.g. , Travelers Prop. Cas. Co. of Am. v. Moore , 763 F.3d 1265, 1267 (11th Cir. 2014) ; Ameritas , 411 F.3d at 1329–30 ; Admiral Ins. Co. v. Feit Mgmt. Co. , 321 F.3d 1326, 1327 (11th Cir. 2003). That is because a tort suit against an insured often generates distinct issues beyond whether the insured is liable for the tort, say, whether the insurer has a duty to defend, or whether the insured's policy covers the liability alleged in the complaint. See Maryland Cas. Co. v. Pac. Coal & Oil Co. , 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941) ; Advanced Sys., Inc. v. Gotham Ins. Co. , 272 So. 3d 523, 527 (Fla. Dist. Ct. App. 2019) (an insurer's duty to defend "is not determined by the insured's actual liability"). When the policy does not cover the liability even if all the facts alleged in the complaint are true, declaratory relief enables the insurance company to avoid the tort suit completely. Cf. National Trust Ins. Co. v. S. Heating & Cooling, Inc. , 12 F.4th 1278, 1290 (11th Cir. 2021). And even when the policy does apply, a declaratory suit allows the insurance company to resolve its liability without waiting for every individual injured party to sue the insured. Declaratory judgments thus play a valuable role in this context, clarifying insurance companies’ liability quickly and directly.

On the other side of the scale are federalism and comity concerns animated by our system of dual sovereignty. Competing state and federal actions are common. See, e.g. , Wilton , 515 U.S. at 280, 115 S.Ct. 2137 ; Brillhart v. Excess Ins. Co. of Am. , 316 U.S. 491, 492–94, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) ; Ameritas , 411 F.3d at 1329–30. After all, while the Declaratory Judgment Act enables a prospective defendant to sue in federal court, it does not prevent the party sued from initiating a concurrent state court proceeding. See 28 U.S.C. § 2201. Nor does anything in the Act prevent a state court defendant from bringing a federal declaratory judgment suit.

What's more, when the issues and parties match, each plaintiff competes to be first to the finish, because whichever case is decided earliest will have preclusive effect on common questions in the other. See Empire Fire & Marine Ins. Co. v. J. Transp., Inc. , 880 F.2d 1291, 1296 (11th Cir. 1989) (holding that declaratory judgments trigger collateral estoppel).

Of central concern in this federalism analysis are cases competing to resolve state law issues that "are not foreclosed under the applicable...